OTTAWA—It may come off as heresy, but Canada is no longer leading the industrialized world out of the recession — it may be in the process of becoming an economic laggard.

A fresh analysis from economist Jim Stanford of the Canadian Auto Workers paints a far different picture of the economy from what politicians, and indeed some private sector economists, have been telling Canadians for most of the past year.

Rather than No. 1 with a bullet among the G7, Canada could have fallen as far as sixth in recent growth.

That is Stanford’s conclusion after comparing average gross domestic product gains in the last two recorded quarters — the second and third of 2010, which encompasses six months from April to September.

Canada averaged a 1.7 per cent advance during the period, beating out Italy’s 1.5, but below every other country in the G7. Germany tops the list with an impressive 6.1 per cent in growth.

It’s even worse if the calculation is on a per-capita basis — a truer measure of economic strength. By that scale, Canada is dead last with a 0.9 per cent gain per person.

“We should stop patting ourselves in the back,” says Stanford. “Yes we’ve had a couple of decent quarters, at the end of 2009 and in the beginning of 2010, but now we’re running below capacity.”

Stanford also tries to shatter another “myth” of the recovery — that Canada’s labour markets have performed superbly, recovering all the jobs lost during the recession, and then some.

It’s one thing for Germany to boast that it has recovered all the lost jobs, he explains, since Germany has a stable population. In Canada, where the working-age population is rising by about 1.5 per cent a year, the economy must create 300,000 jobs just to keep up.

“Less than one-fifth of the damage done to Canada’s labour market by the recession has been repaired,” he says.

Stanford agrees that some of the recent disappointment is due to timing factors. Because Canada’s recovery got off the blocks first, it is natural that it would have hit a speed bump sooner.

As well Canada did not suffer as deep a recession as others, so needs less growth to return to pre-recession levels, and unlike many in the G7, it can boast a sound banking system and healthy government accounts that will pay dividends going forward.

But that explains why the economy is no longer growing at five per cent, says Stanford, not why it has slowed to one per cent, well below capacity.

IHS Global Insight chief economist Brian Bethune also thinks Canada’s recovery has lost momentum and that some of the wounds have been self-inflicted.

The current slowdown reflects that Canada is tethered to the U.S. and can’t deviate for long, he says.

But it also reflects policy differences. While the U.S. government and central bank continues to stimulate the economy, Canada’s policy-makers are withdrawing stimulus.

“There’s a lot of nervous Nellyism in Canada,” he says. “We have the potential to grow faster, but if we continue to overworry about too many things, first inflation and now household debt, it’s not going to happen. It’s like the Bank of Canada is looking for a rationale for tightening.”

Stanford says Canadian governments need to be careful about withdrawing stimulus in 2011 since the corporate sector has not shown itself capable of sustaining the recovery.

But a bigger underlying concern, he says, is the East-West economic divide that is taking form in Canada. Western oil brings wealth into the country, but it also causes the dollar to soar and depress exports of manufactured goods produced in Ontario and Quebec.

“We’ve got too many eggs in the resource basket,” he says. “Alberta is getting a boost from that, but the side effects in terms of a higher dollar, can actually crowd out growth in the rest of the country.”

Most forecasters see Canada’s lagging growth continuing throughout this year, hovering just above two per cent, below expectations for the U.S.

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